FTSE 100 higher as US stocks hit yet another record, Netflix sees big subscriber growth, Wetherspoons and EasyJet doing well, regulator says Royal Mail could reduce delivery days

“The FTSE 100 got off to a strong start on Wednesday as US stocks continued to test new records with earnings season getting underway in earnest,” says AJ Bell Investment Director Russ Mould.

“Reported plans for a big intervention to help restore investor confidence in China helped lift shares with ties to emerging markets including insurer Prudential, banking outfit Standard Chartered and miners.

“Yet another hospitality business lined up to toast a cracking Christmas as JD Wetherspoon reported strong festive trading, showing that’s where people were spending their spare cash rather than in the shops or elsewhere. The company continues to wrestle with rising costs, even if the pace of inflationary pressures has eased, due to a strategy of prioritising volumes over margins.”

Royal Mail

“There was some cheer for bosses at Royal Mail owner International Distributions Services as regulators said it could possibly reduce its delivery days for the privatised UK postal service to three days a week.

“This would significantly reduce costs, although it would likely face opposition from unions and see the company come under significant political pressure if it were to take such drastic action.”

Netflix

“Netflix’s latest numbers shake off any suggestion the company is struggling to find new ways to grow. It has seen a big jump in the number of subscriptions and its original content is proving to be popular with consumers, even receiving 18 Oscar nominations this week across 10 of its original content films.

“A clampdown on password sharing was always going to be a risky move but it seems to be paying off. Households around the world have become used to Netflix as being one of their essential services, they simply cannot bear to live without it. Any freeloaders who used to borrow passwords from friends and family are now signing up themselves, exactly as Netflix had hoped.

“That strategy could have easily backfired with people deciding they don’t need to splash the cash on the streaming platform but Netflix looks vindicated in its move given the strong pace of new customer sign-ups. It is keen to do partnerships with big companies to keep those subscriber numbers ticking up further, such as bundling up Netflix subscriptions as part of mobile phone packages.

“Signing a deal to show WWE Raw also gives people another reason to visit Netflix more often as it is live weekly programming all-year round. That also gives Netflix a new dynamic whereby the platform is no longer simply a place to dip into a TV show and film whenever. Admittedly, Amazon has been using sports to attract viewers for some time.

“Netflix is a company with pricing power. It is able to push up prices without risking a big drop-off in subscriber numbers. It also sees big opportunities with advertising, with a desire to have improved measurement skills and better targeting capabilities so customers are getting more relevant adverts. In theory, the more data it can provide advertisers and the more targeting capabilities it develops, the more it can charge to carry those promotions.

“There are suggestions Netflix has simply been throwing money left, right and centre to get big name stars to appear in its TV shows and films, and that such a spending habit was unsustainable. On a conference call to discuss the results, management implied there would be no change to the current strategy, such as relying more on ‘second run’ content (i.e., showing popular shows and films from previous years).

“While not all of its original content is winning accolades or favourable reviews, a lot of the big-name productions are still drawing in viewers and ultimately that’s what Netflix wants. It is there to entertain.”

Easyjet

“Low-cost airline EasyJet may have had to book a charge relating to the impact of Middle East instability but the company is otherwise enjoying a steady ascent in demand. EasyJet reported a narrowed first quarter loss, during a period where airlines often dip into the red. Crucially, it is reporting good momentum in bookings heading towards the peak summer season.

“It seems consumers still have the capacity and the will to prioritise spending on their holidays. The urge to jet away is understandable after a period during the pandemic when people were prevented from doing so.

“How far this can and will run is a big question for all travel-related businesses who, for the time being, have seen people prepared to stomach a significant increase in the cost of a break relative to pre-Covid times.

“Investors will be watching closely to see if EasyJet can stick to its plans with freshly restored dividend payments as this will be a key indicator of the company’s confidence in the outlook. Any escalation in Middle Eastern tensions could feed into higher fuel prices, creating a renewed headwind for the group.”

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